Smart Money – Blockchain and ICOs
Speaker
Steinbeis
Christian, you are very active in the field of Smart Money Venture Capital. How do you see the current development in the area of financing young growing companies?
Christian
The past few years have been very successful and we are very pleased with the development of our Smart Money Venture activities so far this year. There are a number of new companies in AI, IOT and energy that we currently support within our Smart Money Venture Capital activities.
Steinbeis
Besides AI and IOT, Blockchain is on everyone's lips, there are countless conferences, contributions to Blockchain and startup companies. What is your assessment?
Christian
From our point of view, blockchain is a technology that is hype-packed, especially by the cryptocurrencies. In the areas of Trade Finance, Securities and Supply Chain, we see a number of very interesting practical applications, which also include comprehensive financing platforms. Celsius Network, based in the US and Globacap, a UK company, are interesting examples of modern financing platforms that are also of interest to institutional financing providers. We are invested in Globacap since the seed phase and support the company accordingly.
Steinbeis
Some companies in this area partly finance themselves through ICOs.
Christian
That's right. Two companies, Telegram and EOS, together received US $ 5.7 billion in 2018 through the issuance of their ICOs. The vast majority of ICOs currently have financing volumes of US $ 50-200 million. You have to look at it in the individual case very carefully. We estimate that the default rate for companies that have funded themselves in this area over the last two years, especially through ICOs, will be very high.
Steinbeis
Why is this from your point of view?
Christian
Many ICOs were issued on the basis of so-called "white papers". These are often companies with good ideas, but mostly without proof of concept and market proof. In plain language, this means that the idea of the company first has to prove itself in practice. The normal ICOs are predominantly pre seed or seed financings with high corporate valuations. The default rates in this business stage are historically high.
Steinbeis
That means: Stay away from this asset class?
Christian
No, you can not say that on a flat rate. When examining the underlying that means: analyzing the company, the management, the team and the business model, understanding the scaling, then you also might find "the pearls" worth investing in. The asset class of ICOs is relatively new and is currently developing. Milestone-based payouts, government regulations and professional investors are accelerating the maturity of this asset class in the coming months and years.
Steinbeis
What does that mean for your Smart Money Venture approach?
Christian
From our point of view, ICOs are one of many financing options for young companies. Smart money venture capital is a combination of financing and sales support and this combination has a high relevance for the companies that make use of it because through Smart Money they receive in addition to financing access to the decision makers of their target companies on the customer side. Young growing companies with a Market Proof and Proof of Concept understand this added value and gladly make use of it.